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NFTs: Fungible vs Non-Fungible

NFT

 The foundation for understanding an NFT is in answering the question, “What is a non-fungible token?”

Let’s look at the definition of fungible as a starting point. Fungibility, in essence, means that something is interchangeable; if you and I can swap any two units evenly, the units exchanged would be considered fungible. As an example, a $10 bill is fungible because another $10 bill, or even two separate $5 bills, hold the same value, so they are the same. 

Assets like diamonds, land, or artwork are not fungible because each unit has unique qualities that add or subtract value. For example, individual diamonds have different colors, sizes, cuts, and grades; they are not interchangeable, so that they would be referred to as non-fungible goods.

An NFT is a digital certificate representing a one-of-a-kind asset, just like an individual diamond. Two identical, the metadata on the non-fungible token provides a stamp of authenticity that allows us to tell them apart. 

So why is blockchain the ideal technology for the management of digital assets? Two key features in blockchain, immutability, and security make it ideal for managing digital assets. Up until the most commonly used tokens were fungible, writing any unique information to the token is impossible.

Unique cryptographic tokens that can hold data instead of value could be referred to as non-fungible tokens. They are defined on the Ethereum blockchain with ERC standards such as the ERC-721 standard. The difference between fungible and non-fungible tokens has an emphasis on storing information. 

How do NFTs work

Non-fungible Tokens are essentially collectibles based on the blockchain. To put it more simply, NFTs are crypto assets that are “unique” and “limited”. For example, using the ERC-20 standard, every token in the supply is the same, you can exchange with others 1 ETH and there is no difference in the ETH you receive. 

However, with the standard of Non-fungible Token, the NFT works on the ERC-721 standard, where each token is irreplaceable.

ERC-20ERC-721
FungibleNon-fungible
UniformUnique
InterchangeableNon-interchangeable
DivisibleNon-divisible
Ex: LINK, MKR, UNI, YFI, USDC…Ex: CK, AVASTAR, EM, DCLI…

Creating NFTs

Creating an NFT starts with a piece of content like a photo, a drawing, or a video clip…if fact, it can be any piece of content. It can be an original piece of content, painting, a photo you have taken, or some content or art that has been created already, like the Mona Lisa.

Once created, that piece of content is turned into an NFT by “minting” it on the blockchain. A record of the NFT ownership and transaction history will be stored on the blockchain. You would store this NFT in your digital wallet, and the blockchain can confirm the owner – it can prove your ownership of the original and that the NFT is authentic. Anyone can download a copy from the internet. 

A typical example used to describe an NFT is the Mona Lisa. Just like the Mona Lisa is a one-of-a-kind that exists only at the Louvre, you can own an original NFT that exists on the blockchain, and no copy or NFT will be the same or hold the same value. 

How do you access your NFT once you own it?

Once you own an NFT, you can access it on the blockchain by using a digital wallet. This wallet is the software that decrypts seed phrases to access the account or address where you are listed as the owner of the NFT within the NFT contract, and that contract lives on the blockchain.

Collecting and selling NFTs

Whether buying and collecting NFTs, or flipping and selling them, you can choose a marketplace like Oshen.io, Nifty Gateway, OpenSea, Rarible, and Makersplace. Within these marketplaces, buyers can either place bids or purchase your NFT for a listed price. 

The value of NFTs

NFTs: Fungible vs Non-Fungible 1

The three things that create value for an NFT are utility, access, and social currency. 

A similar concept to NFTs is membership cards, or rewards/points on credit cards, tickets to VIP access-only events. 

If you’ve ever purchased skins, tools, weapons, or other virtual items for your video games, you understand the concept behind NFTs. You wanted that item to be recognized in a world that you cared about or to have bragging rights amongst your peers. NFTs will give you that same utility and “standing” of social currency to everything else in your life. 

The reason people are buying NFTs because people wear clothes with designer logos, drive luxury cars, or hang pictures on their walls. It’s the same reason people care about blue checks on Instagram. Soon, we will check each other’s digital wallets and share connections over mutual interests from our NFT purchases. 

Mitch Rankin

Mitch Rankin

Mitch Rankin is the Co-Founder of Forward Protocol, a technology company building open source blockchain tools to connect the Edtech sector. A devoted husband and father, he has passionately invested on education and blockchain. Focusing on helping solve UNESCO's Sustainable Development Goal 4 (SDG 4) of the 2030 Agenda, he supports the goal to “ensure inclusive and equitable quality education and promote lifelong learning opportunities for all”. His vision is to impact 1 billion people through a better education and learning experience by changing how the world learns. https://forwardprotocol.io.

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